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Five Questions With: Leland Merrill Jr.

RHODE ISLANDERS seem to be doing fewer home renovation projects, based on the volume and types of home equity loans they are taking out, says BankNewport Executive Vice President of Commercial Lending Leland Merrill Jr.

Leland Merrill Jr. is executive vice president of commercial lending at BankNewport. He oversees all aspects of commercial and consumer lending operations.

PBN: With interest rates so low, is the bank seeing an increase in home equity loans?

MERRILL: BankNewport offers both home equity term loans and home equity lines of credit. We have experienced a marked increase in home equity line of credit applications and originations in 2012, mainly due to the competitive interest rates we offer on this product. However, our home equity term loan applications and originations are down. We think this is a result of the stagnant Rhode Island economy and consumers not doing as many home renovation and remodeling projects due to the recession.

PBN: While home equity rates are low, are your lending standards tighter, and if they are, is that changing the profile of people who are applying for and being accepted for home equity loans?

MERRILL: Lending standards at BankNewport have not tightened, and we do not see a change in the profile of people who are applying for, or being accepted for, home equity loans. The main challenge in getting home equity loans approved continues to be collateral values, not credit standing of the applicants.

PBN: Do you see any trends in what homeowners are using home equity loans for?

MERRILL: Historically, these two products have been mainly used for three or four purposes: home renovation or remodeling projects, to pay for a child’s education expenses or other large cost item, to consolidate higher rate debt, or, in the case of the home equity line, to have general available credit. We have seen a slight trend over the past three or four years away from home renovation and remodeling as a loan purpose. Homeowners in Rhode Island are just not doing these sorts of projects as much as they used to. We also have seen an increase in debt consolidation loans – people are consolidating their higher-rate credit card debt into lower-rate home equity loans. There is also one other loan purpose we experience, and that is just a general refinance of a home equity loan from another financial institution. BankNewport’s home equity line of credit production has increased in this regard due to our competitive rate offering.

PBN: Do you think the use of home equity loans in Rhode Island may be different than in other states, for instance, paying down credit card debt rather than doing home improvements?

MERRILL: I believe there is probably a small difference, yes, and it would be mainly due to the higher unemployment rates and general malaise in the Rhode Island economy. Also, home values have rebounded at a better rate in our neighboring states.

PBN: For financial institutions in Rhode Island, are home equity loans an increasing product, compared to mortgages or lines of credit?

MERRILL: Overall, home equity products are probably not an increasing product type throughout Rhode Island. Mortgages are again the leader due to the historic low rates and the ongoing refinance boom. In fact, while production of home equity lines of credit are up, we see outstandings on this loan type continuously running off as existing customers refinance these loans into new lower rate first mortgages. That trend appears to be one we will have to deal with throughout 2013.

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